# Banking and Finance 1

COMMERCIAL BORROWERS
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Terms in this set (28)
where the amount of debt is substantial compared to the borrower's earnings and/or its share capital (equity). Because this involves greater risk for a bank, the controls in the facility agreement are usually tighter. Leveraged loans are usually used for 'acquisition finance' in which companies, or private equity funds, buy other companies or groups
It is important to realise that a bank's information gathering does not end with the signing of the loan document. A bank must monitor the borrower to ensure it has a reasonable chance of getting its loan repaid. This is the practical reason behind the repeated representations and undertakings in a facility agreement
The position is different here. Traditionally, acquisition financings involve greater due diligence since they are leveraged financings with increased risk. However, in very liquid markets, with multiple bidders for each target company, due diligence may be very limited. In particular, if the target is already owned by a private equity house, due diligence may consist of just a few documents and reports about the target company made available to view for a limited time in a 'data room' (either a 'virtual' data room - ie, online - or a designated room at the vendor's solicitor). In a hostile acquisition of a public company, information will also be limited.
A term sheet is a document which records, in writing, the principal terms of a transaction. It is signed by the parties to the transaction, but it is not usually intended to be contractually binding
Term sheets are often attached as an Appendix to a short letter (the 'commitment letter' or 'mandate letter'), which contains any legally binding terms required at the outset of the lending process